CommentariesHey, Look! Money!

North Carolina’s community colleges will receive an extra $10.8 million next year, and here’s how they will spend it.

Funding North Carolina’s community colleges is a tricky business. Funding is based on enrollment, and predicting enrollment year-to-year is a bit like trying to predict the weather. It’s difficult to do, and if you get it wrong, someone—in this case, either taxpayers or community colleges—is going to get all wet.

In the biennial state budget passed last summer, the state planned to spend an amount on the community college system next year (2012-13) that now looks like it will be “too much”—about $10.8 million too much, to be precise. That is, the state appropriated funds to cover this year and next year, but then enrollment fell below projections, leaving the system with money that it didn’t immediately know what to do with.

The state has a peculiar method of allocating funds to community colleges: the present year’s funding is based on the previous year’s level of enrollment (it is funded “in arrears”). Since the General Assembly passes a budget for two years, the system has to estimate what enrollment will be for the first budget year in order to predict the appropriate funding level for the second budget year. If the estimate is off, as it was this year, the General Assembly can readjust the system’s funding level during the short session between budgets. Or it can let the community colleges keep the money, which is what officials will ask legislators to do.

In an interview, Jennifer Haygood, North Carolina community college system chief financial officer, said that the system is “imperfect and problematic”—but better than in the past, when appropriations were based on enrollment projections. That is difficult for a system where enrollment fluctuates widely. Ideally, Haygood said, there would be an “enrollment growth reserve fund” to tide over the times when funding lags behind rapid growth. (Indeed, there was such a fund in the past, but it has been empty for several years.) Without such a cushion, financial conditions sometimes get cramped, as happened at Randolph Community College in 2009, resulting in professors being asked to teach more than the usual number of classes.

But this year the system has a bit of breathing room. Enrollment was projected to rise 1.5 percent this year after rising 28.5 percent over the three preceding years, but it actually fell by about 1 percent. Thus (since, so far, the system doesn’t give money back to the state when enrollment drops), thecommunity colleges will have an extra $10.8 million to spend next fiscal year (2012-13).

Astute readers may be wondering: Why don’t they give it back to taxpayers? Those astute readers have obviously never worked in government. The community college system’s budget has decreased in recent years, and it presumably feels entitled to spend a little extra.

At a state board meeting on February 17, board members settled on four items on which to spend additional funds.

The first item is more money for math classes. As the Pope Center has reported previously, last year the state changed the funding model to reimburse classes on a three-tiers basis. The highest tier would get the most state reimbursement. While the rationale for the top tier (back then) was that these are the most expensive courses, the rationale seems to have changed; it now appears to be economic development. If this proposed item is approved by the General Assembly, math classes will be placed in the highest-reimbursed tier, which currently includes lab-based science, technical education, and healthcare-related classes.

The reason for bringing math into the highest tier is to “enhance math instruction,”presumably by attracting more and better math instructors with higher salaries. Math classes, which make up the “M” in “STEM” (science, technology, engineering, and math) classes, are seen in many policy circles as one of the keys to preparing students for the future economy. As CFO Haygood put it, “STEM education is an important priority for our economy and our workforce.” The system estimates that this higher reimbursement rate (15 percent higher than the present one for math classes) will cost $4.2 million.

The second item is forgoing a scheduled increase in tuition for continuing education. Community colleges are composed of curriculum courses, which lead to associate’s degrees or certificates, and courses called continuing education or non-curriculum classes. Much of continuing education is more directly related to work. Canceling the tuition increase will cost the colleges an estimated $664,509, but the additional funds are covering that loss.

The third item is increasing funding for multi-campuses. These are community college sites that are geographically separated from the main campus. Twenty of North Carolina’s 58 community colleges have at least one of these satellites (one has five). These sitesserve between 500 and 3,000 students (Haygood noted that they are stand-alone buildings, not just storefront locations). Those sites arguably save money because they’re cheaper than building new colleges, which would require a whole new administration. The requested additional funding for multi-campuses amounts to $2.9 million.

The final addition will reduce what is called a scheduled “management flexibility cut.” That term is used for a cut in the state funds that the community college system receives, without state direction on how to implement the cuts.

According to officials in the system, that flexibility cut next year will be about $87 million. But, in fact, the $87 million “cut” isn’t really a cut in the normal sense of the term—it does not mean that the community colleges’ budget will actually decrease by $87 million next year over this year. Far from it. The $87 million figure is essentially a placeholder in the community college system's accounting. It corresponds to cumulative cuts the colleges have made since the current dismal economic times began several years ago. To illustrate what this means, look at last year’s state community college budget compared to this year’s.

In fiscal 2010-11, the community college budget was $1.37 billion. This included a $39 million management flexibility cut. In fiscal 2011-12, the stated management flexibility cut rose to $80 million, but the budget only decreased by $36 million to $1.34 billion. Thus an $80 million "cut" is really only a reduction of $36 million.

(The difference between the $87 million cited by NCCCS officials and the $80 million in this year's budget is due to a one-time loss of $7 million in state appropriations for vocational programs. The programs will not be actually cut, but will be funded with savings that have accumulated from past appropriations, and the state funding will resume next year.)

So the colleges have to reduce spending next year, but not by very much (and even less if state lawmakers let them keep the $10.8 million that started this story off).

Accounting gimmicks aside, it’s difficult to begrudge the community colleges a few extra millions. With over 250,000 full-time equivalent students, this year’s overfunding is only about an extra $40 per student, and a community college student still costs the state about one third the cost of subsidizing a UNC system student. The funding system isn’t perfect, but it’s not bad for government work.